Home Loans Based on Your Stock Portfolio?
Yes, you read right. It is possible to get a loan to buy a new home based on your stock portfolio. In other words, you may be able to get through the home-buying process without any appraisal of the home and other traditional mortgage paperwork.
In order to get approved for this type of loan, you must have a reasonably high net worth and a significant stock portfolio. The stock will be your collateral, instead of your new home. Of course, the loan will still have to be underwritten based on which stocks you own.
What’s the plus side of a loan based on your stock portfolio? Well, there are actually quite a few positives: 1) If you find the right lender, the processing time may be a lot faster than for a traditional home loan; this is especially helpful if you want to close early; 2) Credit scores are not as much of an issue as with traditional mortgages — that is not to say, however, that your credit score will not be taken into account; 3) The loan typically has a fixed interest rate, which is usually lower than a traditional mortgage rate; and 4) The loan is non-recourse.
Of course, there’s a downside as well. What happens if the value of your stocks drop? You have to make up the difference with cash (or other outside financing). Also, you have no option to pre-pay the loan, so you have to work with the lender to find a term that you feel will best meet your needs!